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Machine Learning to Forecast Financial Bubbles in Stock Markets: Evidence from Vietnam

Author

Listed:
  • Kim Long Tran

    (Department of Banking, Ho Chi Minh University of Banking, No. 36 Ton That Dam Street, Nguyen Thai Binh Ward, District 1, Ho Chi Minh City 700000, Vietnam)

  • Hoang Anh Le

    (Department of Banking, Ho Chi Minh University of Banking, No. 36 Ton That Dam Street, Nguyen Thai Binh Ward, District 1, Ho Chi Minh City 700000, Vietnam)

  • Cap Phu Lieu

    (Department of Banking, Ho Chi Minh University of Banking, No. 36 Ton That Dam Street, Nguyen Thai Binh Ward, District 1, Ho Chi Minh City 700000, Vietnam)

  • Duc Trung Nguyen

    (Department of Banking, Ho Chi Minh University of Banking, No. 36 Ton That Dam Street, Nguyen Thai Binh Ward, District 1, Ho Chi Minh City 700000, Vietnam)

Abstract

Financial bubble prediction has been a significant area of interest in empirical finance, garnering substantial attention in the literature. This study aims to detect and forecast financial bubbles in the Vietnamese stock market from 2001 to 2021. The PSY procedure, which involves a right-tailed unit root test to identify the existence of financial bubbles, was employed to achieve this goal. Machine learning algorithms were then utilized to predict real-time financial bubble events. The results revealed the presence of financial bubbles in the Vietnamese stock market during 2006–2007 and 2017–2018. Additionally, the empirical evidence supported the superior performance of the random forest and artificial neural network algorithms over traditional statistical methods in predicting financial bubbles in the Vietnamese stock market.

Suggested Citation

  • Kim Long Tran & Hoang Anh Le & Cap Phu Lieu & Duc Trung Nguyen, 2023. "Machine Learning to Forecast Financial Bubbles in Stock Markets: Evidence from Vietnam," IJFS, MDPI, vol. 11(4), pages 1-18, November.
    • Handle: RePEc:gam:jijfss:v:11:y:2023:i:4:p:133-:d:1276351
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    References listed on IDEAS

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    3. Stiglitz, Joseph E, 1990. "Symposium on Bubbles," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 13-18, Spring.
    4. Peter C. B. Phillips & Yangru Wu & Jun Yu, 2011. "EXPLOSIVE BEHAVIOR IN THE 1990s NASDAQ: WHEN DID EXUBERANCE ESCALATE ASSET VALUES?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 201-226, February.
    5. Xianzheng Zhou & Hui Zhou & Huaigang Long, 2023. "Forecasting the equity premium: Do deep neural network models work?," Modern Finance, Modern Finance Institute, vol. 1(1), pages 1-11.
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    Cited by:

    1. Christos I. Giannikos & Hany Guirguis & Andreas Kakolyris & Tin Shan (Michael) Suen, 2024. "When to Hedge Downside Risk?," Risks, MDPI, vol. 12(2), pages 1-20, February.
    2. Mahalakshmi Manian & Parthajit Kayal, 2024. "Detecting and Forecasting Financial Bubbles in The Indian Stock Market Using Machine Learning Models," Working Papers 2024-270, Madras School of Economics,Chennai,India.

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